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Save your House from Foreclosure in Bankruptcy

Chapter 7

A chapter 7 bankruptcy filing in New Jersey is created to eliminate debt, such as credit card debt, and will not permanently stop a foreclosure action. Please note that it is extremely unusual for a chapter 7 trustee to take or sell a foreclosed property. A chapter 7 trustee will only sell real estate that consists of substantial equity. Immediately upon the filing of the bankruptcy petition, the mortgage company’s foreclosure action must stop. However, the mortgage company will ask the court and the court will grant the mortgage company permission to proceed with the foreclosure action. After the mortgage company obtains permission to proceed, the foreclosure action proceeds at the same place that it stopped. The mortgage company continues with the foreclosure until the house is sold at sheriff’s sale or the action is resolved in another fashion.

During and after the bankruptcy filing, the debtor may reside in the property until the sheriff’s sale. During and after the chapter 7 filing, the debtor may continue to resolve the foreclosure action, in an attempt to avoid the sheriff’s sale. Typically, the foreclosure action may be resolved by a loan modification, mediation, deed in lieu of foreclosure and short sale. These terms are explained in a separate portion of the website.

Chapter 13

A chapter 13 is created to allow an individual the ability to save their house from a foreclosure action. In a chapter 13, the debtor is required to make a monthly payment to a trustee for 36 to 60 months. The payments include the total amount of the mortgage arrears and the mortgage company’s attorney’s fees and costs as of the filing date. The bankruptcy payments must also include the trustee’s approximate 10% commission on the total amount paid, plus other possible costs / expenses. The debtor may be required to pay other creditors, depending their income, expenses, assets, liabilities and type of debt. The monthly trustee or plan payment is determined by adding all of the figures by the number of months of the plan. In addition to making the trustee payment, the debtor must also pay their monthly mortgage payments on a timely basis.

The New Jersey bankruptcy courts are granting debtors the opportunity to seek a loan modification, while in bankruptcy. Recently, the courts are allowing the debtor 6 months to obtain a loan modification upon the filing of their chapter 13 bankruptcy case. Typically, this allows the debtor to enter into a loan modification and make the trial loan modification payments. If the debtor is able to obtain the loan modification, he is no longer required to pay the pre filing mortgage arrears through the monthly trustee payments, as the loan modification, typically eliminates such arrears. Please note that no third party entity, including the court or the trustee has the power to force the mortgage company to modify the loan or set the terms of the modification. In the event that the debtor is unable to enter into a loan modification, the debtor’s plan must be adjusted to pay the pre filing mortgage arrears, by way of a modified plan. If the debtor is unable to pay the pre filing arrears, the debtor is unable to save the house.

If the debtor makes his trustee and regular monthly mortgage payments on a timely basis for the entire bankruptcy plan, the mortgage will be brought current and the foreclosure action will be terminated. However, on occasion, at some point in the bankruptcy case, the debtor may fall behind with the mortgage or trustee payment. If the debtor falls behind with his mortgage payment, the trustee may file a petition with the court requesting the dismissal of the case. However, the debtor has an apportunity to cure the trustee arrears or resolve the matter by making a lump sum payment, with the balance paid over a reasonable time period.

If the debtor falls behind with his regular monthly mortgage payments, the mortgage company will file a petition with the court requesting permission to proceed with the foreclosure action. Under this scenario, the debtor may resolve the after filing arrears’ issue by agreeing to a cure these arrears. If the mortgage company obtains permission to proceed with the foreclosure action, the debtor may deal with the matter, the same as explained above, when the mortgage company obtains permission to proceed with the foreclosure action in a chapter 7.

Contact a NJ Bankrupty Attorney

The New Jersey Bankruptcy lawyers of The Law Offices of Robert Manchel are experienced in the areas of loan modification, mediation, and bankruptcy. You may contact our attorneys for a free consultation at the following number: 1(866) 503-5655.